You need a downpayment to purchase a home, but if yours is less than 20 percent of the home, you may have to pay for private mortgage insurance.

What is Private Mortgage Insurance? 

Normally, when you go through the payment process of buying a home and want to qualify for a good mortgage, you make a down payment of 20 percent, or more if you want a smaller interest rate. But when you make a down payment of less than 20 percent, the lender starts to get nervous as a small red flag starts to wave in front of their face because you may be too risky to loan hundreds of thousands of dollars to. They will very likely require that you purchase private mortgage insurance (PMI). The insurance policy protects the lender from losing the money should you end up in foreclosure not being able to pay back the lender.

PMI is also required if you refinance your home with less than 20 percent equity.

PMI fees vary. They depend on the size of the down payment and your credit score, and go from around 0.3 percent to about 1.5 percent of the original loan amount per year.

Once your outstanding loan balance drops to 78 percent of the home’s original value, your lender must automatically cancel the PMI. This will likely take well over a decade, but knowing this information in advance can help you keep an eye out when you approach that percentage.

Every person’s house-buying situation is different, but if you need a private mortgage insurance policy, we can help you out. For all of your home loan needs throughout Solana Beach and San Diego County, as well as all of California, contact Elvin Wesley at Ranch & Coast Mortgage Group Inc. We have the experience needed to make sure you get the right mortgage.